Analysis: Europe's leaders weakened when bold action needed

Oct 2, 2011, 11:02 p.m.

PARIS (Reuters) - Just when Europe needs strong leadership to overcome its sovereign debt crisis, its pivotal leaders, Angela Merkel and Nicolas Sarkozy, have both been weakened at home.

The political fates of the German chancellor and the French president may hinge on their handling of the crisis that began in Greece and threatens to overwhelm the 17-nation euro area.

"If the euro fails, then Europe fails," Merkel often says. She might add that she and Sarkozy would be likely to go down with the ship.

Yet powerful domestic forces are pulling the two leaders in opposite directions ahead of elections in France next year and in Germany in 2013, driving Sarkozy to seek a bold advance in European integration but keeping Merkel's foot on the brakes.

The chancellor is under pressure from voters, influential media and rebels in her center-right coalition to resist any further bailouts after unpopular rescues of Greece, Ireland and Portugal failed to stop the crisis spreading.

Opinion polls show three-quarters of Germans oppose any more aid for Athens. Merkel has said she is doing her best to avoid a Greek default, but indicated that may not be possible.

After a string of state election defeats, she struggled to rally a majority of her own supporters in parliament last week behind strengthening the euro zone's rescue fund.

"This time it has to be enough!" the mass-circulation Bild daily thundered the next day. The conservative establishment Frankfurter Allgemeine Zeitung said the parliament vote was "no carte blanche for a rescue orgy."

Economics Minister Philipp Roesler, leader of the liberal Free Democratic junior coalition party, which has been gutted in recent elections, vowed to oppose any leveraging of the 440-billion-euro fund to increase its financial firepower.

That presages tougher fights to come over a proposed second bailout for Greece, and the creation of a permanent European Stability Mechanism to replace the temporary rescue fund.

Each new Bundestag vote is likely to be more difficult than the last. That could reinforce Merkel's innate caution and resistance to big ideas such as common euro zone bonds or a large-scale joint program to recapitalize European banks.

The chancellor describes her own crisis management philosophy as "driving by sight," advancing "step by step" and avoiding processes that could run out of control.

Critics say the risk is that her small steps could soon be overtaken by uncontrollable events in the financial markets.

"She never takes the lead on anything. She wants to be the person who sums up at the end of the meeting," said a former European leader who attended EU summits with her for years.

STATESMANSHIP SOUGHT

By contrast, Sarkozy is under pressure at home to avoid a Greek default, which would harm shaky French banks, and to accomplish some feat of European statesmanship to propel a re-election bid mired in sleaze scandals and economic gloom.

"It is not possible to let Greece fall both for economic and moral reasons," he said after meeting Greek Prime Minister George Papandreou, drawing a parallel with the collapse of U.S. investment bank Lehman Brothers in 2008. "The entire banking system around the world paid the consequences."